High Inflation Means UK Faces Real Decreases in Ad Spend This Year

Tim Cross 26 January, 2023 

The Advertising Association and WARC have forecasted 3.8 percent growth in UK ad spend this year in their quarterly Expenditure Report, following what is predicted to have been 8.8 percent growth last year. But when inflation is taken into account, the AA and WARC expect a 3.0 percent decline in ad spend, reflecting the current tough economic climate. Meanwhile ad spend in 2022 is predicted to have been pretty much flat in real terms, down by 0.1 percent.

Last month, agency group Denstu had similarly predicted that high inflation would mean that ad spend growth this year will look strong at a glance, but will be much weaker in real terms.

“With the economy enjoying modest growth in November, and inflation appearing to have reached its peak, it is likely that the UK narrowly avoided slipping into the recession at the end of last year that many had feared – but a downturn now seems unavoidable in 2023,” said James McDonald, director of data, intelligence, and forecasting at WARC. “Despite an air of resilience in recent market results, a looming recession will put pressure on ad trade this year.”

The new projections mean the AA and WARC have now downgraded growth expectations in nominal terms for almost all sectors of advertising. The only segment which hasn’t had its 2023 forecast cut since the last Expenditure Report is cinema, which has been handed an 8.9 percentage point increase.

There were some bright spots in the forecast however. Official data on Q3, as well as preliminary results for Q4, means some areas of advertising now look to have had a better 2022 than previously expected. Video On-Demand revenues in particular are now projected to have grown by 10.5 percent last year, up from a previous prediction of 10.1 percent.

And WARCs James McDonald said that while the year ahead looks tough, conditions may improve soon after. “The silver lining here is that our current modelling suggests that the slump will be short lived, with advertising investment set to lift by 5 percent over the first nine months of 2024,” said McDonald.

But in the near term, media owners will have to fight hard to win ad budgets which are decreasing in real terms. “In times of financial scrutiny, it is more important than ever that ad spend is delivering results and that corners are not being cut in an effort to deliver fast returns,” said Carina Moran, head of agency strategy development at Yahoo UK. “Flexibility is pivotal as brands rethink their approach to efficiently engaging an ever-changing consumer. Overall, it’s important for brands to be adaptable and creative in their approach to online advertising, both channel and format, in order to maintain growth in this challenging economic climate.”

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About the Author:

Tim Cross is Assistant Editor at VideoWeek.
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